California Tipping Point
For the first time since it was admitted to the Union, California’s congressional delegation will soon shrink. After the 2020 census, we will lose at lease one seat in the House. Relative to Nevada, Arizona, Idaho, Texas and Florida, we are losing population. For those willing to look, this is the proverbial canary in the coal mine. The bloom is off the California rose.
A pause here for a short lesson in economics. Follow the money! Those places which produce wealth and import wealth are prosperous. Those places that inhibit wealth creation and export wealth are poor. For 150 years, California was a real and metaphorical gold mine. Our wealth creation accelerated massively in the last 30 years by means of imported venture capital and technological breakthroughs. We are now in the process of reversing the flow.
We are not losing population on an absolute basis. Emigration is being offset by immigration.
Who is leaving? High income earners are escaping a marginal tax rate of 13.3% on earned income and capital gains that they can no longer deduct from their federal tax bill. Commuters trapped in daily gridlock are moving to places where the automobile is not regarded as the handiwork of the devil. Public transit commuters are looking for a place where the transport does not double as a homeless shelter and bathroom. Prospective home buyers are comparing million dollar shacks to the median price of a house in real world America ($294,000). Businesses are looking at the Arizona State “ease of doing business” ratings that have San Jose in 64th place and San Francisco in 77th place. Those that aren’t relocating headquarters are hollowing out their California operations to find venues where it is easier and cheaper to do business.
Who is moving in? Lots of immigrants are from Asia. Most of them have employment skills and will eventually add to the State’s wealth. More immigrants are from Central America. Most of them are functionally illiterate (in both Spanish and English). It is true that we owe shelter to refugees from the drug wars created by our consumption of the product, but the economic impact is not positive. Central American peasants will consume more wealth than they create. We will have to educate their children, provide medical care and create subsidized housing for them.
Let’s say you hate capitalists and are happy to see them go. Let’s say that you believe that inequality is immoral and want more wealth transfer and regulation of the economy to achieve equal outcomes. Let’s say you believe in open borders to succor those who are oppressed. Our loss of high earners and businesses is still a problem.
This year’s State budget is $220 billion. Just under half of that comes from the personal income tax (highest in the nation). The top 1% of earners pay 46% of the total. The top 10% pay virtually all of it. If we chase the high earners out of the state, there won’t be any wealth to transfer. And we are doing this at a time when the public sector pension time bomb (a shortfall of hundreds of billions of dollars) is going off. Since California is run by public sector unions, that explosion will not be muted by a cutback of benefits to retirees. You, dear taxpayer, are on the hook per the provisions of the State Constitution.
The cliche is that California is a one party state, that party being Democrat. In fact, we have two parties: Progressive and Hell-for-Progressive. They operate in coalition to create public policy that discourages wealth creation and encourages the export of wealth. There is no chance that Conservatives/Republicans/Libertarians will have any impact on policy in the near term. The best we can hope for is a new third party: Progressives who can add and subtract.